What To Do Right Now In The Stock Market

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A few weeks back I warned that we might be seeing signs of topping in the market.  Whether or not we have seen the top is an open question and won’t be determined for a long time.  However, the recent volatility has unnerved a lot of investors who are worried that a crash might be coming soon.

Tomorrow in The Lund Loop I am going to tell you exactly what you can do right now in the market to minimize your risk, but more importantly, maximize your potential upside.

You can subscribe for free by just clicking this link.  As an added bonus, just for subscribing you will receive a free copy of my book “Trading: The Best of the Best – Top Tips for Our Times,” which contains over 200 trading and investing tips from 60 of the smartest people you will ever meet.

See you tomorrow.

-B

Satan Wants You To Buy These Stocks

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Everyone knows that each time a share of $AAPL is bought, another angel gets his wings.  But what about the other side of that equation? What about buying those “sin stocks” that Satan himself probably owns?

I’ve got a piece up this morning on AOL’s Daily Finance that explains why from a financial, moral, and pragmatic standpoint you SHOULD be buying these types of stocks.  And not just the obvious suspects. Sin stocks don’t just announce themselves with tickers like $DETH, $HELL, or $CNCR, so I’ve got a whole Sodom and Gomorah-ish list to check out.  Just click the link below.

Even The Righteous Should Invest in Sin

Why You Never Say Never In The Stock Market

Robert Downey Jr.

Investing may be your passion, but the process — the analytical process you need to find winners — should never fall prey to the trap of sentimentality, or worse yet, nostalgia.

This is where investing and art part ways.

As Americans we love our art, which in this modern world really means television.  With six-hundred channels to choose from we stalk our content with a retardedly keen eye, curating out that which resonates deepest in our soul, and throwing the rest away as if the chaff of the craft.

We binge watch our favorite shows, infusing an immediate and intense relationship with our favorite characters.  We love them — often more so than the material figures in our lives — exulting in their triumphs and despairing with their failures.  It is a part of our human condition, which forgets the line between art and reality.

Not so long ago I found myself in the restroom of an office building, standing in front of a waterless urinal which had recently been installed.  I turned to the right and remarked to my colleague standing next to me;

“Do they really expect these things to catch on?  The smell is awful.”

“Well they are supposed to cut down on water use.  It’s all a part of a drive to make the building more green,” he said.

“It sounds like they want to make it more yellow,” I replied, my Shakespearian wit going into overdrive.

“They’ll never go for it,” came the reply from my left.

“Who?” I said, turning to face the author of these comments

“The unions.  They will never go for it.  These waterless urinals mean no plumbing.  No plumbing, no work for the plumber’s union.  They will never go for it.”

The author of these comments was a forty-something man, who despite his scraggly beard, unkempt hair, and baseball cap pulled low across his brow, could not hide a somewhat boyish face.  There was a familiarity in his eyes that I could not immediately place.

“Right,” I said.  “The unions. They will never let them get away with this.”

“Besides,” he continued.  “They make the place smell like piss.”

We all laughed and small talk was exchanged as we washed our hands and made our way out into the hall.  Turning away from the stranger, I looked at my colleague and almost immediately, as he said, “Do you know who that was?” realized in fact who I had been talking to just a moment earlier about urinal politics.

“Luke Perry,” I said.

“Luke Perry,” he replied.

Imagine a time before the internet, before social media, and before six hundred channels of cable pumped content into our homes 24/7/365.  A time known as 1990, when there were only three and a half real television networks, and if you were on one of them with a hit show, you were a true superstar.

And Luke Perry was a superstar.  Playing the role of the ever brooding Dillon on the seminal show “Beverly Hills 90210,” he reached a level of fame that you could only imagine today if Robert Patterson and Justin Bieber were mutated in some horrible industrial accident into the cutest vampire pop star that ever lived.  It’s too dreamy to even imagine.

He was white-hot.  Every girl wanted to sleep with him and every boy wanted to be him.  But when his show ended, effectively so did his career.  Now he is the answer to a Trivial Pursuit question.   A Twitter punchline at best.

This is where art and investing reconnect.  Stars, once fallen, traditionally never rise again.  And stocks, particularly momentum stocks, once broken, do not return to their glory days.

The overwhelming exception to this rule seems to be $NFLX.  A stock which rose 600% in a little over two years and then lost 83% of it’s value in the following year.  This stock should, like Luke Perry’s career, be dead and buried.

History is full of momentum darlings that crashed and burned and have never recovered.  $CSCO, $BRCM, $BBRY, and $POT immediately come to mind.  That is the way it has always been.  Like a financial law.  So has it been written, so shall it be done.

But this bull market is changing the rules.  Stocks like $NFLX are not only resurrecting themselves, but surpassing their previous glory.  Look around.

$QCOM, a 90’s internet bubble casualty is getting dangerously near its all-time highs.  $TASR, a one-time momentum favorite in the early 2000’s is about 33% off its all-time high.  Doesn’t sound too impressive until you realize that from its peak at one point it had lost 99.992% of it’s value.

This market is so powerful that it has done the near impossible.  It has turned “Luke Perry” stocks into “Robert Downey Jr.” stocks.

I don’t know if this is a good sign or bad sign for the future prospects of this market, but it is sure more interesting to talk about than waterless urinals.

There Is Nothing You Can Learn From George Soros

Geroge Soros Market Wizard

Earlier this week the Irish Times ran a piece celebrating the 84th birthday of one of the most successful — and arguably, most well-known — investors of the last century, George Soros.  (Hat-tip to my friend Josh Brown).

Soros’ prowess in the markets is legendary, so much so that deconstructing his process in order to learn the secret to his success has become a cottage industry in financial circles.  In the world of  “Market Wizards,” Soros is Saruman.  Tolkien baby…look it up.

However, in the Times’ article, his son Robert demystified the source of the Elder Soros’ alchemy in such a simple and definitive way that it may drive market historians to acts of self-immolation.

Apparently It all comes down to a pain.  In the back to be specific.

According to his son, Robert, Soros’s trading was always influenced by more than reflexivity. “My father will sit down and give you theories to explain why he does this or that”, he once said, “but I remember seeing it as a kid and thinking, ‘Jesus Christ, at least half of this is bullshit’.

“I mean, you know [that] the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm and it’s this early warning sign.”

Soros has admitted to relying greatly on “animal instincts”, saying the onset of acute pain was often “a signal that there was something wrong in my portfolio”.

His decisions, then, “are really made using a combination of theory and instinct”.

That’s right.  Though you and I did our damnedest to read between the lines and glean some sort of insight from The Alchemy of Finance in the 80’s and again with Soros on Soros in the 90’s, it was all for naught.  Now we know the true source of this modern-day Tim The Enchanter’s genius.  Monty Python baby…..look it up.

This revelation might tempt some of you to adopt the same market style as Mr. Soros, a view I wholeheartedly endorse, as long as the profile fits.  It’s easy to see if a spasm based methodology is right for you by answering a few simple questions.

  1. Are you a passionate student of the market?
  2. Are you open to considering a wide range of investment themes?
  3. Have you ever booked a $1 billion dollar single-day profit by breaking a sovereign bank?
  4. Did you marry a 41-year junior third wife on your $22 million dollar Westchester estate while Paul Tudor Jones and Julian Robertson looked on?
  5. Have you booked over $40 billion in cumulative profits?
  6. Do you have a full head of hair well into your eighth decade on this planet?

If you answered “Yes” to 5 out of 6 of those questions, then by all means, adopt the “discomfort” approach to your investments.  Let your back pain, your trick knee, or even your throbbing headache from the 13 Jack and Cokes you threw back at the bar last night be the guide to your entries and exits.

For the rest of us who move in more mortal circles we will try to use objective, data driven, risk averse methods to move our thousands, and if lucky, millions, in and out of the market.  We’ll try not to let our fear nor our greed drive our decision-making process, and ascribe that pain in our back simply to less than optimal ergonomic choices in our office furniture.

When Billionaires Cry

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The Lund Loop is a once-weekly curated slice of what I am writing, reading, and hearing about in finance, tech, music, pop culture, humor, and the good life.  But no sports or knitting….ever!  You can subscribe for free by clicking here.

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Welcome back folks.  I know it’s been a tough week for all of us given the horrible news out of the Jay-Z-Beyonce camp but I appreciate you putting on a brave face and checking back in with the Lund Loop.

By the way, if you are getting this by mistake or no longer wish to receive the Lund Loop, be a sweetheart and refrain from reporting this email as “spam.”  Just click the “unsubscribe” button at the bottom of the page and I promise I will never darken your doorstep again. Thanks. Now let’s do this….

Writing:

Reading:

Hearing:

Short and sweet….

“Nobody solves poverty by going broke.”

-Adam Braun, founder of “Pencils of Promise” which has built over 200 schools in 3rd world countries.

—–

“People go where they grow.”

Seth Godin on what attracts people to certain content or products.

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“Suicide.”

 -Marc Maron when asked by Norm Macdonald what other professional options he had before starting his podcast.

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“He was a natural movie star, not a natural actor. He had to learn that.”

-Scott Eyman, author of “John Wayne : The Life and Legend.”

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“Get up, do it, prove you can do it, then do something else.”

-Magician Lance Burton on how to keep people engaged.

Misc:

And finally….

  • When I die, turn me into one of these and then huck it at Justin Bieber/Kanye West/A random Kardashian/Anyone on “The View.”

Thanks for hanging in there with me.  Don’t forget to follow me on Twitter and if you liked The Lund Loop why not forward this email to a friend and tell them they can subscribe here.

See ya next week!

-B

CNBC Is Dead – Here’s Why Retail Investors Won’t Miss It

To those of you who have been loyal readers of this blog over the last few years it might be apparent that I have “slacked off” a bit in 2014.  And by slacked off I mean, barely blogged at all.

At the first of the year I was fortunate enough to have the opportunity to begin writing for AOL’s Daily Finance and About.com’s Stock Guide, and I am just now starting to figure out an editorial schedule that will let me handle those obligations as well as post regularly here.

In the meantime, check out my piece on the death of CNBC for the retail investor.  Here’s a slice….

CNBC was never really a useful tool for the retail investor, but now it occupies an awkward space where it’s neither fast enough to compete with social media, nor deep enough (nor accountable enough) to compete with long-form digital content, and not accessible enough to compete with online personalities.

Advances in technology have finally revealed the dirty little secret about CNBC — and financial news television in general: Their shows are window dressing for clients in the offices of institutional investors, and obsolete badges of honor for financial pundits.

And if you get a chance, take a look at an “Intro to Technical Analysis” series I just finished.

Thanks for your patience while I get my shit in order.  I hope to be back in the groove of things here on StockTwits very soon.

You Take The Money Where You Find It

You would not believe the amount of shit I took after posting this to the StockTwits stream a couple weeks back….

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I recieved anonymous tweets, angry emails, and sky-written messages above my house lambasting me for suggesting a possible trade in Sears Holdings ($SHLD).

Real traders – – the cool ones at least – – would not touch Sears with a ten-foot science pole I was informed.  I mean after all, it’s not Netflix ($NFLX), or Apple ($AAPL), or Amazon ($AMZN), or Twitter ($TWTR), Facebook ($FB) or Google ($GOOG).  Those are serious “trading” stocks.

Didn’t I know that Sears was a dog?

Didn’t I know retail was dead, and that Sears was the deadest of the retail dead – – literally with zombie stores  – – where the only activity is the occasional visit by a hoodie wearing Brian Sozzi, pursuing his fetish-like documentation of sloppy end caps and under-stocked shelves?

Didn’t I know that Sears was going to go the way of Circuit City, Borders, and Woolworths?

Not much however was said when I posted this to the streams less than two weeks later…

Up 22% since this. RT @bclund: $SHLD has put in a double bottom. If you’ve ever wanted to bottom fish it, now is a good risk/reward spot.

— Brian Lund (@bclund) Feb. 13 at 08:34 AM

Look, the point of this post is not to show how great I am – – though there is a pretty powerful argument that could be made for how great I am – – but to illustrate the point that you find opportunities where they present themselves, not where you think they should present themselves.

And if you are trading, which by definition means you are only using technicals to buy and sell, then whatever the narrative is for the company underlying the stock is irrelevant.

I haven’t bought anything in a Sears in years and regularly joke that if I need a bumper pool table in hurry, it’s the first place I will go.  But none of that matters when sizing up a trading opportunity.  Price, volume, and support and resistance levels have no relation to what Brian Sozzi, or anybody else for that matter, thinks about Sears.

Remind yourself that the point of trading is not to “be cool,” but to make money.  Money can be made in all types of stocks, in all sorts of sectors, no matter if they are hot or not.  And if by chance you happen to look cool while doing it, well then consider it a bonus and move on to the next trade.

Even The Professionals Can Be Wrong

I’ve never been much of a hero worshiper.  The fanboy gene just doesn’t seem to be a part of my DNA.

I’ve eaten dinner an arm’s length away from Lindsay Lohan and the Hilton sisters.  I once gave Justin Timberlake directions to the men’s room.  I’ve even cracked wise in Ellen DeGeneres’ living room (she laughed but Anne Hecht stood there stone faced).  Despite the star power present, none of these encounters seemed extraordinary to me.

There are however some public figures whom I find “interesting.”  People who I wouldn’t mind picking their brain for a couple of hours over a few pints of fine craft beer.

Anthony Bourdain comes to mind.  Neil Peart of Rush definitely.  And in the world of finance, Carl Icahn and David Einhorn would be at the top of my list.

On the surface these two couldn’t seem more different.  Icahn is a street wise kid from Queens who is known for saying exactly what’s on his mind.  Einhorn on the other hand grew up in Wisconsin and exudes a quiet, confident, and reserved nature in interviews.

Yet both attended Ivy League schools – – Icahn at Princeton  and Einhorn at Cornell – – both run hedge funds, and both are wicked smart.  To me, Einhorn, out of all the current crop of “star” fund managers, seems most likely to have a long and profitable career like Icahn.

But even a pro like Einhorn can be wrong.

Einhorn has been shorting $GMCR ever since unveiling an hour-long presentation two years ago that criticized the company and what he believes is their fraudulent accounting.

Even as recently as last November he reiterated his position on CNBC’s Fast Money.

Paraphrasing Einhorn he said…

There are many ways to win short on this stock.

I have questions about their numbers and how they have been disclosed.

The company has lost the patent on K-cups. 

The have earned monopoly type margins in the past, but as more competitors come in, price will fall, along with margins.

The day of that interview $GMCR closed at $70.57 per share.  Yesterday, after $KO announced that they were taking a 10% stake in the company, the stock soared 45% in after-hours trading to $117.33 per share.

Though it’s not clear if Einhorn still has his short position or if he had hedged it, I think it is safe to say that he was wrong.  And really the only type of wrong that matters, price action wrong.

David Einhorn will no doubt survive this setback and live to short another day, but this is a good reminder to those of us that don’t run multi-billion dollar hedge funds, that, in the words of my friend Brian Shannon, price is the only thing that pays.  No matter what we think the script is or how it might play out, we always have to respect and obey price action, as it is never wrong.

The “There Is No Way” Market

Unless you have been living under a rock, you know that the game has changed this time.

There is something a bit more ominous about this latest market sell-off.  Nothing concrete yet — no definitive chart or stat you can point to — that tells us this might be more than the standard 4-8% mini-correction we have experienced numerous times over the last few years.

But something in the tone and tenor seems different.  Sometimes when the indexes are down big, a closer look still finds winners among the leaders.  All the former leaders have been taken out to the woodshed this time.  The losses seem broader, more across the board.  The only stock showing strength is $MSFT, which is cold comfort.

A prized thoroughbred naturally has different types of gaits; walk, trot, canter, and gallop.  They may not be discernible to the crowd, but the trainer who handles him daily with love and respect can distinguish them, and can tell when something is amiss.  He knows that pushing his horse when his underlying health is suspect can have dangerous consequences.  Seasoned professionals know the same thing about the markets.

For some reason, markets like the one we are in right now seem to attract soft money, not repel it. Investors and traders who should be doing nothing more than sitting on their hands and re-reading the Market Wizards series are rushing to “take advantage of the volatility.”  Meanwhile, smart money is standing aside, waiting for more information, a clearer picture, and a better diagnosis of the market’s health.

Regardless of whether this is “the big one” or not, we have definitely entered into a dangerous type of market, what I like to call a “There is no way” type of market.  It’s hallmark is the cry of “there is no way,” which comes from those with some, but not enough, understanding about how markets work.

There is no way it can go lower.

There is no way it won’t bounce here.

There is no way $AAPL won’t come back.

There is no way I can sit on the sidelines while this is going on.

There is no way I am wrong on this stock.

There is no way I went full margin on that position.

There is no way I could have lost all my money.

There is no way I am going back to working as a used car salesman.

The irony of the “there is no way” market is that, “Yes!” there is a way.  It is precisely when you start believing that there are things the market just won’t do, that it in fact does them.

Markets like this are the exact type in which you have to put your biases away and keep your mind open to what can happen.  You also need to alter your strategy.

If you are a trader, resist the urge to catch every bounce.  Trade less.   Trade smaller.  Trade smarter.

If you are an investor, pare down your losers and raise cash.  Find the stocks that hold up best during this turmoil and put them on a list.  That is your shopping list, the one you will use to buy from when things settle down and the smoke clears.  Those stocks will be the winners in the next move up.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.

How To Avoid Over Trading During A Losing Streak

I tend to look at the world through market colored glasses.

If I have to wait in a ridiculously long line at the grocery store because there are only two registers open, that’s an order imbalance to me.  Too many buyers and not enough sellers.

Recently I took a much despised transcontinental flight.  The day of my flight there was one first-class seat open, costing an upgrade fee of seven hundred and fifty dollars.  When I boarded the plane it was still available — three fifty I estimated as long as the cabin door remained open.  Forty-five minutes into the flight it was down to a buck ten.

A polite request to the flight attendant and a smile, and it was mine for eight dollars.  It hit my target and I hit the bid.

So when I got an agitated call from a good friend of mine last week regarding a domestic matter, I naturally framed it in terms I could related to best.

My friend and his wife both make a good living, but by the end of each month they always seemed to be in the red.  The root of the problem appeared to lay at his wife’s feet, as she seemed to be the one draining the bank account on a regular basis.

Note: This is not meant to be some sort of gender biased comment; it’s just happens to be how the facts lay out in this case.

In order to find some sort of mutually agreed upon solution, he and his wife decided that they would not make any purchases over one hundred dollars without checking with each other.  But despite the plan, by the end of the next month, they had still gone negative.

A quick look at their monthly statement told the story.  His wife had indeed stuck to the rules of their agreement; but not the spirit.

There were almost fifty individual charges on her debit card ranging from forty-five to ninety-five dollars a piece.

What I saw was over trading.  And possibly a stint in couples therapy.

I have talked at length on this blog about the importance of a methodology and using position sizing to define your risk, but you can still blow your account out if you use “respecting your max loss rules” as a rationalization for over trading when you are running bad.

There are a couple of ways you can avoid that.

One option is to limit the number of trades you make in a given time period.  For a day trader that might be two to five trades a day. For a swing trader that might be six to ten trades per month.  

A second option is to set a maximum cumulative dollar loss for your account in a given time period, regardless of number of trades.

But no matter which method you use, the important idea is that it is based on tying individual position losses to your overall account equity.  That way you have created an objective criteria to let you know when you are over doing it and need to dial things back.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.  All proceeds go to fight pediatric brain cancer.